In every business relationship there is the potential for conflict over contractual agreements or business operations. When such conflicts arise, there is no need to incur the onerous expense and delays involved in traditional litigation. There are readily available alternative dispute resolution procedures that will enable you to resolve your disputes relatively quickly, fairly and cost-effectively.

Resolving international disputes demands special skills, experience and cultural sensitivity. That’s why thousands of attorneys and their clients turn to JAMS. We are a recognized leader in cross-border mediations and arbitrations, with resources wherever you or your clients do business.

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The JAMS ADR blog serves to engage our clients, the legal community and the public in a discussion about alternative dispute resolution. As leaders in mediation, arbitration and more, we strive to remain at the forefront of legal developments, trends and news in areas of law that pertain to ADR.

International commercial arbitration is one of the fastest-growing practices at JAMS. With industry leading rules, JAMS is praised for a highly experienced panel with specialties in many key areas, multilingual case management capabilities, and unparalleled service. JAMS specializes in the resolution of international disputes and is one of the largest providers of commercial arbitration in the world.

JAMS Global Construction Solutions Newsletter, Winter 2012

JAMS Global Construction Solutions Newsletter, Winter 2012

Source:

Date:
Winter 2012

Caught between arbitrators and
the Courts: interim measures in
u.s. international arbitration
By Hon. J. Edgar Sexton and Adam Lazier ......... 1
musCular arbitration
By Harvey J. Kirsh .......................................... 1
med-arb, why not?
By André Simard ............................................ 6
if a frog had wings: expeCtations
and realities of ConstruCtion
dispute resolution
By Michael Tarullo .......................................... 7
notiCes & events ................................. 11
muscular arbitration
by Harvey J. Kirs H, arbitrator and Mediator, J aMs
u.s. supreme Court Justice anthony Kennedy recently
told reporters at a legal conference that the supreme
Court’s docket is more heavily oriented towards criminal
and f irst amendment cases, and that “a lot of big civil
cases are going to arbitration.” And in Canada, the Chief
Justice of the Supreme Court of Canada, Rt. Hon. Beverley
McLachlin, has written that “the trend is clear: Fewer and
fewer construction cases are reaching the courts where the
law is developed. Increasingly, instead of being resolved by
judges, construction disputes are being sent to mediation,
arbitration, or other forms of alternative dispute resolution.”
t hough the Channel tunnel connecting britain and
f rance was one of the great construction and engineering
accomplishments of the late twentieth century, in the fall
of 1991 its construction was mired in a legal dispute.
Work on the tunnel had by that time been underway for
more than three-and-a-half years. A dispute arose between
Eurotunnel, the owners and future operators of the tunnel,
and Trans-Manche Link (TML), the consortium of French
and British companies building the tunnel. TML claimed that
Eurotunnel was shortchanging it on payments related to the
construction of the tunnel’s cooling system. In October 1991,
TML threatened to suspend all work on the cooling system
if its demands were not met. Despite the fact that the contract between Eurotunnel
and TML contained a clause requiring the parties to resolve any disputes by
arbitration in Brussels, Eurotunnel sought an injunction from an English court
Caught between arbitrators and the
Courts: interim measures in u.s.
international arbitration
by Hon. J. e dgar s exton, r etired Justice of c anada’s
f ederal c ourt of a ppeal, a rbitrator and Mediator,
JaMs and ada M lazier, b la Ke, cassels & g raydon llp ,
t oronto
JAMS GLOBAL ENGINEERING
AND CONSTRUCTION GROUP
JAMS is the largest private alternative
dispute resolution (ADR) provider
in the world. With its prestigious
panel of neutrals, JAMS specializes
in resolving complex, multi-party,
business/commercial cases—those in
which the choice of neutral is crucial.
the Jams global engineering and
Construction group provides expert
mediation, arbitration, project neutral
and other services to the global
construction industry to resolve
disputes in a timely manner.
To learn more about the JAMS Global
Engineering and Construction Group, go to
www.jamsadr.com/construction-practice
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WHAT’S INSIDE
JAMS GLOBAL CONSTRUCTION SOLUTIONS
Winter 2012
l eading adr d evelopments from t he r esolution experts
hon. J. edgar sexton,
Retired Justice of
Canada’s Federal
Court of Appeal,
Arbitrator and
Mediator, JAMS
> See “Muscular Arbitration” on Page 5
> See “Caught between Arbitrators and the Courts” on Page 2
harvey J. Kirsh,
Arbitrator and
Mediator, JAMS2 JaMs Global Construction Solutions |
Winter 2012
Caught between arbitrators and the Courts continued from Page 1
requiring TML to continue its work until the dispute was
resolved by arbitration. TML responded that the English
court had no jurisdiction because the parties had agreed
to use arbitration. The case, known as Channel Tunnel
Group v. Balfour Beatty Construction,
1
eventually reached
the House of Lords, which refused to grant the injunction.
Considering that the issue reached the House of Lords in
England, it is perhaps surprising that it has not reached the
Supreme Court of the United States. This leaves American
litigants in an uncertain position. When faced with a situation
like the Channel Tunnel Group case, should they seek relief
from an arbitrator or the courts? Would the case be resolved
the same way in the United States today?
the Channel Tunnel Group case
The judge at first instance would have granted the injunction
sought by Eurotunnel, although he declined to do so when
TML undertook not to suspend work without notice. The Court
of Appeal reversed that decision. While an English court had
jurisdiction to grant an injunction in support of a domestic
arbitration between English companies, according to the Court
of Appeal, it had no jurisdiction to issue an injunction relating
to a dispute that was the subject of a foreign arbitration.
The House of Lords affirmed the decision of the Court of
Appeal, but for different reasons. Lord Mustill held that the
court did have the jurisdiction to grant an injunction in support
of a foreign arbitration. However, he wrote that an injunction
would be inappropriate in this case. Because Eurotunnel
also sought a permanent injunction from the arbitrators, by
granting an injunction the court would effectively preempt
the arbitrators’ decision and usurp the role that the parties
had agreed to give the arbitrators alone. He concluded that
granting an injunction “would be to act contrary both to the
general tenor of the construction contract and to the spirit
of international arbitration.”
Lord Mustill characterized the interaction between arbitrators
and the courts in broad terms:
The purpose of interim measures of protection…is not to
encroach on the procedural powers of the arbitrators but to
reinforce them, and to render more effective the decision at
which the arbitrators will ultimately arrive on the substance
of the dispute. Provided that this and no more is what such
measures aim to do, there is nothing in them contrary to the
spirit of international arbitration.
When assessing whether an American court is likely to follow
the House of Lords’ decision, it is important not to overlook
one factual quirk in the Channel Tunnel Group case. Despite
threatening to suspend work on the tunnel’s cooling system,
TML never actually did so. In some sense, then, the House
of Lords was faced with an abstract legal issue. One wonders
whether the result would have been the same had construction
actually been suspended and an injunction really been
necessary to keep such an important construction
project going.
the applicable rules
Arbitrations are governed by two sets of rules: the terms of
the contract between the parties and the relevant legislation.
Where the arbitration clause between the parties specifically
addresses the role of courts in providing interlocutory relief,
the court need only hold the parties to their agreement.
Often the arbitration clause in the contract will not address
this issue, but instead incorporate a set of arbitration rules,
which may offer some assistance dividing jurisdiction between
arbitrators and courts. This may not settle the issue, however.
The JAMS International Arbitration Rules, for instance,
empower the arbitral tribunal to grant “whatever interim
measures it deems necessary, including injunctive relief,”
2
but also note that requesting such measures from a court
“will not be deemed incompatible with the agreement to
arbitrate.”
3
This type of provision does not establish when
it is appropriate for a court to grant such relief.
Where the terms of the arbitration agreement are not
clear, courts look at the relevant legislation. The United
States has not implemented the United Nations Commission
on International Trade Law (UNCITRAL) Model Law on
Commercial Arbitration, which explicitly gives courts and
arbitrators concurrent jurisdiction over interim measures.
4
However, it has ratified and implemented the Convention on
the Recognition and Enforcement of Foreign Arbitral Awards,
better known as the New York Convention.
5
1
Channel Tunnel Group v. Balfour Beatty Construction, [1993] A.C. 334 (Eng. H.L.)
2
JAMS International Arbitration Rules (April 2005), article 26.1.
3
Id., article 26.3.
4
See articles 17 and 17J.
5
June 10, 1958, 31 U.S.T. 2517, 330 U.N.T.S. 3. The New York Convention was implemented by Chapter 2 of the Federal Arbitration Act, 9 U.S.C. §§201-208.
St. Pancras Channel Tunnel Train StationJaMs Global Construction Solutions |
Winter 2012 3
Though international arbitrations can also fall under other
treaties and legislation, such as the Inter-American Convention
on International Commercial Arbitration (also known
as the Panama Convention), the North American Free
Trade Agreement or bilateral investment treaties, most
international arbitrations fall within the auspices of the
New York Convention.
§203 of the Federal Arbitration Act gives federal courts
original jurisdiction over “an action or proceeding falling under
the New York Convention.”
6
The Convention does not explicitly
discuss the question of interim relief because it is primarily
concerned with the recognition of enforcement of arbitral
awards on the merits.
In this absence, courts have focussed
on Article II(3):
The court of a Contracting State, when seized of an action
in a matter in respect of which the parties have made an
agreement within the meaning of this article, shall, at the
request of one of the parties, refer the parties to arbitration,
unless it finds that the said agreement is null and void,
inoperative or incapable of being performed.
Courts are divided as to whether this language implicitly
addresses their power to issue interim measures in support
of international arbitrations. Similar language in §3 of the
Federal Arbitration Act has given rise to a parallel debate.
the law of preliminary injunctions
The Supreme Court has established a four-part test for
granting a preliminary injunction. The party seeking the
injunction must satisfy the court that: (a) it is likely to succeed
on the merits; (b) in the absence of relief, it is likely to suffer
irreparable harm; (c) the balance of equities favors granting
the injunction; and (d) the injunction is in the public interest.
7
One issue in the Channel Tunnel Group case was whether
an English court could issue an interlocutory injunction in
support of an arbitration to be held abroad. The House of
Lords reversed the Court of Appeal on this issue and held
the English court could do so. American courts have reached
similar conclusions. Where courts have accepted that they
have jurisdiction to grant injunctive relief, they have not
been troubled by the fact that the arbitration is to take
place abroad.
8
Although neither the New York Convention nor the Federal
Arbitration Act grants arbitrators the right to order injunctions
or other interim relief, courts have held that they have the
inherent authority to do so unless the parties agree to the
contrary. The parties’ agreement to arbitrate would lose
meaning unless they also intended to grant the arbitral
tribunal the power to preserve the status quo until it can
decide the case on its merits.
the overlap between courts
and arbitrators
Except where the jurisdiction of the court has explicitly been
ousted by the parties, judges are loath to deprive litigants
of access to the courts. However, the parties should be
held to their bargain, especially in light of the compromise
represented by the arbitration agreement.
Faced with the uneasy interaction between these two
principles, courts have taken at least three different
approaches to applications for injunctions in the face
of an arbitration clause. Under the first approach, courts
simply deny that they have any jurisdiction to grant interim
relief. This approach appears to be based on two things: a
broad reading of Article II(3) of the New York Convention
as prohibiting courts faced with an arbitration clause from
doing anything other than referring the parties to arbitration,
and policy concerns that the party seeking judicial relief
was seeking to bypass the agreed-upon method of settling
disputes.
This line of cases has been roundly criticized by academics
and courts.
It relies on a strained interpretation of the text
of the New York Convention that is inconsistent with the
Convention’s history and travaux préparatoires.
Its sense of
policy is also flawed. While it is true that parties should be
held to their agreement, this position ignores the fact that
there are many situations where parties cannot get important
relief from the arbitrators, either because the arbitral panel
has not been formed or because it lacks jurisdiction. If interim
relief is unavailable, the dispute may be moot by the time
it can be decided by the arbitrators, making the arbitration
agreement hollow. Finally, it is telling that this interpretation
has found no support from foreign courts interpreting the
New York Convention.
The second approach goes to the other extreme, holding that
the presence of an arbitration clause does not in any way
limit the court’s authority to order interim relief.
We believe
this approach is also flawed. Where parties have agreed to
resolve their dispute by arbitration, it is illogical to assume
this agreement includes final remedies but somehow excludes
provisional remedies. The essence of an arbitration clause
is the parties’ decision to stay out of court, often for reasons
relating to confidentiality or cost.
Where the dispute is
between parties in different jurisdictions, the decision to
arbitrate also often represents a considered choice to avoid
giving either side a “home field advantage”
in domestic
courts. Going to one of those same courts to receive
interlocutory relief may violate the spirit of the parties’
agreement and give one side an unfair advantage.
Because
they are immersed in the facts and procedural history of the
6
9 U.S.C. §§203.
7
See Winter v. Natural Resources Defense Council, 555 U.S. 7, 20 (2008).
8
Sauer-Getriebe KG v. White Hydraulics, Inc., 715 F.2d 348 (7th Cir. 1983) (arbitration to be held in London); Bahrain Telecommunications Co. v. Discoverytel, 476 F. Supp. 2d
176, 180-87 (D. Conn. 2007); Rogers, Burgun, Shahine & Deschler v. Dongsan Constr. Co., 598 F. Supp. 754, 758 (S.D.N.Y. 1984).4 JaMs Global Construction Solutions |
Winter 2012
case, arbitrators are generally better placed than courts to
determine whether an application for provisional measures
is truly needed or whether the legal process is being used
as a delaying tactic or as a means of gaining an advantage
in settlement discussions. By undermining the effectiveness
and predictability of the arbitration agreement, this approach
actually diminishes the parties’ autonomy.
This approach also relies on the premise that there is little
connection between a court’s decision on interlocutory relief
and the final decision on the merits, which is reserved for the
arbitrator. The reality is not so simple.
A court faced with an
application for an interlocutory injunction must consider the
merits of the case at the first stage of the test, and its findings
could influence the parties’ arguments and the arbitrator’s
decision.
The court’s decision whether to grant the injunction
will also shape the facts on the ground facing the arbitrator,
which can and do affect the arbitrator’s final decision
and choice of remedy. These concerns must be balanced
against the fact that an interlocutory injunction may be often
necessary to ensure a dispute is not rendered moot by the
parties’ actions before it can be decided by the arbitrator.
If parties do wish to retain unrestricted access to the courts,
they are of course always free to include this in the arbitration
agreement.
A third approach, which views arbitrators as the primary
source for interim relief without entirely blocking parties’
access to the courts, avoids these problems.
Even where granting the interim relief would not directly
preempt the arbitrator’s decision on the merits, under this
approach courts only assume jurisdiction in cases where
the arbitrator cannot grant the relief sought.
9
This may be the case for a number of reasons. The parties
may not yet have appointed an arbitrator, a process that can
take months.
Even if an arbitrator has been appointed, he or
she may not be able to deal with a motion quickly enough.
10
Courts, which are available 24 hours a day if necessary,
may be able to offer more urgent relief. Though arbitrators
generally do have the authority to grant interim relief, the
remedy sought may be outside the limits of the arbitrator’s
jurisdiction, either generally or under a specific arbitration
clause.
An arbitrator, for instance, has no power to issue
relief binding third parties.
11
Some courts have taken this further and suggested that
a court should deny interim relief where it is theoretically
available from the arbitrators, even if getting that relief is
practically impossible. In one case, for instance, the party
seeking a writ of attachment sought judicial relief because
it knew that provisional relief would not be available under
the arbitral rules due to a jurisdiction quirk. The court
nonetheless denied relief, holding that as long as the arbitral
rules allow for provisional relief, the practical question of
whether that relief is actually available on the facts of a given
case was “irrelevant.”
12
We think this goes too far. Courts
should approach the question of whether relief is available
from the arbitrator in a pragmatic way, never losing sight of
whether their intervention would help or hinder the arbitration.
Judicial intervention is often appropriate where for whatever
reason the arbitrator cannot even consider a claim for interim
relief on its merits.
Conclusions: some practical advice
Though we believe courts should exercise restraint when faced
with an application for an interlocutory injunction in support
of a dispute governed by an arbitration agreement, not all
American courts have done so. Still other courts, however,
have denied that they can consider such applications at all.
One hopes that in time the Supreme Court will resolve this
uncertainty. In the meantime, however, the prudent course
of action is to seek interlocutory relief from the arbitrator
whenever possible. This avoids the possibility that a court
will decline jurisdiction, wasting time and money.
9
See Simula, Inc. v. Autoliv, Inc., 175 F.3d 716, 725-26 (9th Cir. 1999). See also Bahrain Telecommunications Co. v. Discoverytel, 476 F. Supp. 2d 176, 186-87 (D. Conn.
2007) (holding that availability of provisional relief from the arbitrator is a relevant consideration to the court, though it is not necessarily determinative); Merril Lynch, Pierce,
Fenner & Smith v. Salvano, 999 F.2d 211, 215-16 (In domestic context, District Court had jurisdiction to grant temporary restraining order, but erred by extending it after the
arbitral panel had been constituted). This approach is also advocated by Wauk, supra note 16.
10
This exception is recognized in s. 8(2)(b) of the Revised Uniform Arbitration Act (2000).
11
United Steelworkers of America v. Warrior & Gulf Navigation Co., 363 U.S. 574, 581 (1960); Nationwide Mut. Ins. Co. v. Home Ins. Co., 330 F.3d 843, 846 (6th Cir. 2003).
12
China Nat’l Metal Products Import/Export Co. v. Apex Digital, 155 F. Supp. 2d 1174, 1182 (C. D. Cal. 2001). In that case, the arbitral rules allowed the Chinese arbitrators
to apply for a writ of attachment from the Chinese People’s Court in the domicile of the party against who the measure is sought. Because the writ was sought against property
belonging to a foreign party, no People’s Court had jurisdiction and the arbitrators were powerless.
New York City CourthouseJaMs Global Construction Solutions |
Winter 2012 5
However, despite what appears to be a trend, much has also
been written about the shortcomings of arbitration. In 2010,
the College of Commercial Arbitrators (CCA) undertook a
study of arbitration and produced its landmark booklet,
“Protocols for Expeditious, Cost-Effective Commercial
Arbitration.” Essentially, the Protocols observed that trial
practices were being imported into the arbitration process
and that arbitration was beginning to look just like litigation.
The Editors of the Protocols ultimately concluded
that lengthy discovery, excessive claims for document
production, multiple depositions of witnesses and numerous
motions contribute to greater expense and delays in the
arbitration process. The primary recommendation was that
“arbitrators must aggressively manage the process from
day one of their appointment.” The notion of “control,”
particularly over the discovery process and the schedule,
was paramount among their recommendations.
At its recent Annual Meeting, the CCA characterized the
controlled case management technique as “muscular
arbitration”. By way of contrast, however, a colleague
recently gave an account of an arbitration where both he
and the opposing counsel, as well as the arbitral panel, were
content to proceed at a leisurely pace. In response to my
comment about muscular arbitration, he humorously coined
the countervailing term “flaccid arbitration,” stating that
if that is what the parties want, then the arbitrators should
respect and accommodate that approach. I leave it to the
reader to decide, but the weight of all recent literature
seems to support the view that in order to really make
arbitration different than litigation, it is necessary for the
arbitrators to manage the process efficiently and to move
it forward.
the white & Case survey
2010 was also the year that White & Case, in conjunction
with the University of London, undertook an empirical
survey of international arbitration. The survey was based
on questionnaires and in-depth face-to-face interviews of
in-house counsel, who were found by the survey to have
made most of the important strategic decisions. The
following were two of the interesting findings of the survey:
1. t he respondents were asked their views about the
cause of delays and who was responsible. most of them
answered that it was the parties who contributed most
to the length of the proceedings. delays, they
responded, were caused by excessive discovery of
documents, by the initial constitution of the panel
and by the arbitration hearings. t he respondents also
stated, interestingly, that the arbitral tribunal should
exert control over the parties to keep the process moving
quickly. t he survey respondents wanted a disciplined,
“muscular” process; and
2. a section of the survey dealt with the selection of
arbitrators, and found that the most important factors
were open-mindedness and fairness, as well as prior
experience, availability, knowledge of the applicable law
and reputation. but 50% of those surveyed stated that
they were disappointed with arbitrator performance.
the t arullo survey
Another recent survey of a broad spectrum of construction
project stakeholders, described in Michael Tarullo’s
article in this issue, appears to confirm that, although
arbitration is not without its faults, the majority of the
respondents expressed the view that it is considerably
more cost-effective than litigation in resolving construction
claims. They also stated that the process would be more
appealing if it were managed more effectively, with limited
motions and discovery, and with a reasonable
but abbreviated timeline.
“Muscular arbitration” may be an acquired taste, but
it clearly appears that a “flaccid arbitration” process is
not the preferred route to follow.
Mr. Kirsh is an arbitrator, mediator and project neutral
with the JaMs new y ork resolution center. email him at
hkirsh@jamsadr.com or view his engineering & construction
bio online at www.jamsadr/kirsh.
University of London
muscular arbitration continued from Page 1 Page 26 JaMs Global Construction Solutions |
Winter 2012
med-arb, why n ot ?
by a ndré s iMard, g ilbert s iMard t re Mblay, Montreal, Québec
to say that construction remains
fertile ground for disputes of all
sorts is to state the obvious. the
owner’s cost controls and unrealistic
schedules conflict with the
contractor’s profit-oriented business.
and the contractor, who is often
confronted with conditions that differ
substantially from those described or
anticipated, may seek compensation
for the delay and extra costs incurred.
Construction legal battles are
complex, long and costly. Lawyers’
and expert fees are compounded by the time required
for preparation and the loss in staff availability and other
financial resources. The courts, with their limited resources,
have become reluctant to grant weeks and months of trial
time, causing long delays and backlogs. And construction
claims lasting over ten years are not uncommon.
A number of criticisms have been leveled at conventional
arbitrations as well, for having become private trials
generating similar costs, extensive discoveries,
interlocutory motions and prolonged hearings.
Other methods of dispute resolution have been developed,
such as Partnering, Independent Neutral and Dispute
Resolution Boards, that are set in place at the start of a
project and deal with problems and actual or potential
disputes as they arise, during the progress of the
construction. These resolution methods remain cumbersome
and require substantial amounts of documentation that
govern the formation, scope and powers of the Boards
and the functioning procedure. They have proven to be
more suitable for large industrial or government projects
and public private partnerships of long duration.
Mediation has not gone without criticism either. Many
counsel consider it a loss of time and energy, and remain
reluctant to engage in a process that can be aborted at
will and may not provide a final implementable solution.
Experience has also shown that some litigants will agree
to mediation, without a sincere intent to resolve the
dispute. In extreme cases, we have seen litigants
considering mediation as just another way to cause
additional expense and delay for the opponent or
to discover the strengths and weaknesses of the
opposing positions and adjust accordingly.
Generally, the parties to a dispute have an undeniable
common interest: They want a final solution that is
economical in time, resources and cost. There will always
remain that type of litigant with a resolve to destroy or
bankrupt the opponent by any means. No efficient dispute
resolution method can satisfy this type; long costly judicial
battles will therefore remain a common strategy.
Experimentation has been attempted with a Med-Arb
procedure, where the mediator is given by the parties the
power to act as both mediator and arbitrator. The rationale
for this resolution technique is that the parties would
make a serious and sincere attempt to find a consensual
solution to their dispute in order to keep the control toward
the desired outcome and avoid a final resolution by the
third party they have chosen. The mission of the mediator/
arbitrator is to provide the parties with the solution they
should have agreed to themselves on the basis of both
law and equity, while not being confined within the
substantial or procedural rules of law.
Quebec jurisprudence reports one decision that declared
invalid a contractual agreement where the parties had
agreed to submit to Med-Arb before a mediator with the
power to arbitrate should the mediation fail.
In 1999, the Quebec Superior Court concluded that
a mediator who receives privileged or confidential
information during the mediation cannot maintain the
neutrality and independence required to decide as an
arbitrator, on the basis of admissible evidence only and
in accordance with the law.
13
Even though the decision has
not been confirmed in appeal, that criticism is easily shared
by litigants and their counsel.
One could argue a contrario that judges and arbitrators
are often faced with inadmissible factual and technical
evidence, whether objected to or not. They have to
determine credibility or lack thereof. The mediator
becoming arbitrator, upon failure of the parties to come
to a final agreement, will have to analyze the evidence,
determine credibility and base his award on what he
deems admissible in accordance with the law, in an
independent and unbiased manner, which is not an
easy task under any circumstances. No system is perfect
or without shortcomings.
The Centre de Médiation et d’Arbitrage de Paris (CMAP)
proposes, in its rules and bylaws, an original method
that seems to avoid the shortcomings of the previously
mentioned techniques. It is called Med-Arb simultanés
(Simultaneous Med-Arb).
Its stated objective is to provide the guaranteed double
benefit of an expeditious and final solution of disputes.
It consists in setting in motion two procedures that
occur simultaneously but independently of each other.
The dispute is submitted to a mediator and one or three
arbitrators; the mediator will not communicate with the
arbitrator(s) about the matter, and vice versa.
The arbitrator(s) will be called upon to render a decision
eight days following the expiry of a fixed delay (three
months save written agreement otherwise) and only on
the issues remaining unresolved by the mediation. If the
> See “Med-Arb” on Page 10
13
T.S.Mfg Co. vs Les Entreprises Ribeyron, C.S. Hull, 17-1-99, EYB 1999-10724
andré simard,
Gilbert Simard
TremblayJaMs Global Construction Solutions |
Winter 2012 7
expectations and reality are often
found to be inconsistent in life.
o ne continuously finds that
there are disconnects between
dispute resolution processes and
stakeholder expectations. s earching
for solutions requires communication.
s ometimes solutions are illusory,
but the challenges of construction
disputes mandate continuing review
and refinement of dispute resolution
processes.
Resolving construction disputes often seems analogous
to a search for the impossible. Expectations of those parties
involved in disputes can be easily frustrated without hope
for satisfaction. Such frustration brings to mind an old
saying often proffered when one would ask why a simple
solution could not be reached. “If a frog had wings, it
wouldn’t bump it’s a__ all the time.”
The search for understanding from the stakeholders’ view
prompted the survey that is the foundation of this article.
The responses to the survey questions provide a glimpse
into the priorities of those most impacted by the dispute
resolution process in the construction industry.
t he survey
In an effort to gain insight into stakeholder expectations,
a survey was conducted of 200 individual entities involved
in the construction process. The participants consisted
of a broad spectrum of stakeholders from a variety
of jurisdictions.
The following represents the demographic of those
responding:
11% Owners or Developers
34% General Contractors or Construction
Managers at Risk
9% Agency CM or Owner’s Representatives
14% Subcontractors
17% Suppliers/Vendors
15% Design Professionals
The survey intended to identify whether the respondents’
expectations were met, show what users of the various
processes believed characterized the process best (and
its possible shortcomings) and provide an opportunity to
indicate suggested improvements.
In brief, the survey highlights the continuing and growing
use of mediation, as well as the concern with other methods
of dispute resolution.
t he survey r esults
1. w ithout consideration to the results, were you satisfied
that the process met your expectations?
yes
a. Initial Decision Maker (IDM) 37.5%
b. Dispute Review Board 41.7%
c. Mediation 75.8%
d. Arbitration 40.0%
e. Litigation 62.0%
The response to this question suggests that, subject to the
comments below, of the two most often advocated dispute
resolution processes, arbitration has a less than acceptable
level of meeting the expectations of the users. Mediation
seems to be successful, at least for these parties, but
these results were expected to be higher.
2. was/were the “neutral(s)” effective in managing
the process?
yes
a. IDM 40.0%
b. Dispute Review Board 38.5%
c. Mediation 80.0%
d. Arbitration 61.0%
e. Litigation 58.0%
One complaint that seemed to resonate with stakeholders
was that the process was not managed and it seemed
to have a life of its own. The exception to this frustration was
mediation. Because it is a party-driven process, it would be
reasonable to expect that mediation would score higher
in the “effectiveness” category. One might consider
whether the stakeholders’ expectations relate more to the
neutrals being more “evaluative” than merely “facilitative”
in their efforts.
3. h ave you utilized an initial decision maker (idm) (other
than the architect) to attempt resolution of a dispute?
YES 15.0%
It seems that even though one of the major complaints
with dispute evaluation by the designer has been the lack
of objectivity, very few are taking advantage of the third-
party neutral to act as the first line of evaluation.
michael tarullo,
Ice Miller LLP
if a f rog had wings: expectations and r ealities of Construction
dispute r esolution
by Mic Hael t arullo, ice M iller llp8 JaMs Global Construction Solutions |
Winter 2012
4. Check all that apply as most characteristic of the
identified process:
g ood f ast eConomi C
a. IDM 25.0% 12.5% 62.5%
b. Dispute Review
Board
55.6% 22.2% 22.2%
c. Mediation 31.0% 10.0% 59.0%
d. Arbitration 70.0% 20.0% 10.0%
e. Litigation 100.0% 0.0% 0.0%
The unique subject matter often considered by the Dispute
Review Boards likely impacted these results. Mediation
surprisingly was not considered “fast.” This may well be
driven by the amount of discovery that seems to precede
the mediation. Although only 40% of those that have
participated in an arbitration proceeding viewed it as
meeting their expectations, 70% believed that it was
a “good” process.
5. do you believe a neutral should explain the rationale
of his/her decision?
YES 94.0%
This result reinforces the often-articulated expectation that
the parties wanted to know the “why” for the results they are
given, even if it is “bad news.”
6. do you believe disclosure of “reasoned” arbitration
awards would be (check all that apply):
62.0% Helpful to resolving other disputes
26.0% Not helpful because each case is different
41.0% Helpful because consistency in awards
is needed
0.0% Not helpful
The unique aspects of each construction case would seem
to make virtually every case distinguishable. However,
the response to this question suggests that insight into
the reasoning of arbitrators would be a helpful guide to
stakeholders, just as case law guides counsel.
7. as arbitration is defined as an equitable process,
do you think neutrals must follow the letter of the law?
yes n o s ometimes
53.0% 29.0% 18.0%
Although some have taken issue with the definition of the
arbitration process, it seems that the majority of respondents
want arbitrators to follow the law.
8. as arbitration is defined as an equitable process, do you
think the neutrals must follow the exact requirements
of the contract?
yes n o s ometimes
74.0% 15.0% 11.0%
Even though there appears some recognition that following
the law could produce an unfair result, clearly following the
exact requirements of the contract is expected. Given the
prevalence of “notice” mandates with “irrevocable waiver”
clauses, it would seem that similar harsh results could be
found. It seems that the construction user feels strongly that
the “deal is the deal” and everyone should have to abide
by the “rules.”
9. r ank the following in order of importance 1 – 9 with
“1” being most important as to the characteristics
of a neutral?
2 Knowledge of construction
3 Knowledge of construction law
5 Knowledge of the law
7 Knowledge of the process selected
6 Years of experience
9 Education
8 Cost of the Neutral
1 True neutrality
4 Communication skills
Although expense seems to be the focal point of many
complaints regarding construction dispute resolution,
the cost of the neutral appears of low concern. As would
be expected, the responses to this question confirm the
importance of neutrality and knowledge of construction
as high priority.
10. f or those disputes in which you were involved,
who do you believe caused the most delays?
44.0% Lawyers
23.0% Other party
24.0% Neutral
9.0% No one
This question was premised on the common complaint
that dispute resolution processes take much longer than
they should. Interestingly, parties believe that lawyers
and the neutral contribute most to delays in the process.
Responses to other questions in the survey indicate that
neutrals need to be more assertive in managing the dispute
resolution processes. JaMs Global Construction Solutions |
Winter 2012 9
11. w hich of the following do you believe are critical
considerations in determining a dispute resolution
process? (check each that is applicable)
82.0% Time
85.0% Fairness
70.0% Cost
18.0% Done without Lawyers
56.0% Done so you can preserve business
relationships
3.0% Other
Reinforcing many of the other responses, timeliness
is critical to the expectations of the parties. What seems
somewhat inconsistent in these responses is the high
consideration of cost. Business relationships are not
unexpected as a priority expectation, but interestingly
it was not at the top of the list. Although some complain
that lawyers are a cause for delays in the dispute resolution
process, proceeding without lawyers was very low on the
priority list.
12. do you believe that the project delivery system
being utilized can impact the ability to resolve
disputes on a construction project?
yes n o s ometimes
74.0% 20.0% 6.0%
As is seen with the development of integrated delivery
systems, stakeholders expect that choosing the proper
delivery system can lead to more effective resolution of
disputes. In the same sense, choosing a delivery system
that does not lead to cooperation can be equally frustrating
to the resolution of disputes.
13. do you believe that clauses that require the “losing”
party to pay the “prevailing” party’s legal fees:
Encourages settlement 74.0%
Discourages settlement 26.0%
The parties believe that additional risk of a “losing” party
clause would encourage rather than discourage settlement
discussions. For the experienced responder to the survey,
the high cost of dispute resolution is a significant motivating
factor to dispute resolution. Experience suggests that
defining quantitatively who would be considered the
prevailing party is very important to making such clauses
readily enforceable.
14. w hat are the biggest problems with arbitration?
35.0% Cost of arbitrators
30.0% Time to award
12.0% Limited discovery
44.0% Too much discovery
32.0% Failure of the arbitrator to dismiss motions
53.0% Failure of the arbitrator to follow the law
15.0% Lack of discovery
32.0% Limited appealability
24.0% Lack of published awards
9.0% Other
Again, cost factors are of concern in arbitration, but the
most telling response is the complaint that arbitrators do not
follow the law. Confirming process management issues was
the response that there is too much discovery in arbitrations.
Several responses reinforce the concern that arbitration
is not as timely a process as is expected.
15. w hat would make arbitration more appealing to you?
38.0% Limit discovery
62.0% Manage process to reduce time to award
32.0% Increase appeal rights
Reinforcing other responses regarding the management
of the arbitration process in order to meet the expectation
of a “speedy” process remains the highest priority.
16. do you believe discovery in arbitration is out of control?
yes n o
53.0% 47.0%
Notwithstanding many of the complaints regarding
arbitration, it seems arbitration is still a viable dispute
resolution process, but with some specific issues to be
addressed in order to meet the expectations of stakeholders.
17. do you believe arbitrators grant too many time
extensions or fail to set reasonable deadlines?
yes n o
60.0% 40.0%
Stakeholders point to the arbitrators as contributing to delays
in the arbitration process, further reinforcing the concerns
with management of the arbitration process.
18. should the arbitrators require the participation
of a principal for the party on all conference calls
and scheduling sessions?
yes n o
60.0% 40.0%
It appears that having the parties participate in scheduling
conferences would press the more timely administration of
the arbitration process. Keeping the parties engaged in the
process will address a host of stakeholder expectations.10 JaMs Global Construction Solutions |
Winter 2012
19. is litigation or arbitration more cost-effective for
resolving a construction dispute?
Litigation 38.0%
Arbitration 62.0%
Even with the failed expectations for many, arbitration
is believed by these stakeholders to be more cost-effective
than litigation.
20. is the limited ability to force other parties (such
as the design professional or subcontractor) into
arbitration a significant problem?
yes n o
56.0% 44.0%
The inability to join other parties was historically a concern
for many. The modifications to standard contract documents
to allow joining of third parties may well have impacted the
response to this question.
Conclusions
The responses to the survey reinforce the priorities of
stakeholders to find cost-effective and efficient dispute
resolution processes. Stakeholders expect to have an
understanding of the end result and do not want to suffer
through delays in getting to those results.
Although the tried-and-true process of mediation and
arbitration remains the favorite of most stakeholders that
responded, there are concerns and criticisms about delays
and management of the process. Emphasis needs to be put
on neutral management of dispute resolution. It is important
that each party is given fair opportunity to articulate its
position, but there needs to be a balance between “litigation-
mode discovery” and timely resolution.
There may also need to be a cultural shift in the
construction industry as it relates to publication of
arbitration awards. Consistent with the view of construction
of most stakeholders, surprise is not what is wanted,
although maybe it should be expected. Guidance from
other cases is believed by the respondents to be essential
for efficient dispute resolution in the construction
industry. There need to be continuing efforts to improve
the communication between stakeholders about dispute
resolution and how creative approaches can bring
effectiveness and understanding to the process.
A simple solution may remain elusive, but we continue
to look for that “frog with wings.”
mediation provides a complete solution, the mediated
agreement puts an end to the arbitration. Partial agreements
will be communicated to the arbitrators, and only the
unresolved issues will be pursued in arbitration.
Simultaneous Med-Arb thus offers to the litigating parties
full control of the delay and cost, while guaranteeing
a solution in fine, be it amiable or imposed.
The procedure is initiated by a joint request to the CMAP
for the setting up of simultaneous Med-Arb. If stipulated
in a contract, the request may be joint or by one of the
parties to the agreement. The CMAP issues the procedural
documentation and an estimate of the costs based on a
preset tariff.
Unless otherwise agreed to in writing, the total duration
is three months from the notification that the arbitrator,
or board of arbitrators, has been seized of the dispute and
that the mediator has been designated by the CMAP. The
mediator and the arbitrator(s) determine the procedure to be
followed. The final arbitration award will be issued no fewer
than eight days after the stipulation end of the mediation
and only on the issues remaining unresolved by the parties.
The two procedures move simultaneously and separately
from each other. The CMAP does not reveal the name of
the mediator to the arbitrator(s), and vice versa, and they
are forbidden to discuss or talk about the dispute should
they get to know about one another.
The mediator and the arbitrator(s) are to remain
independent, impartial and unbiased; are held to full
disclosure both before and during the process; and are
subject to recusation (under Civil Law, a plea or exception
by which a defendant requires that the decision-maker
having jurisdiction of the cause should abstain from
deciding upon the ground of interest). A replacement
procedure is also provided in case of incapacity, death
or recusation.
The mission of the mediator is to assist the parties, by any
means deemed appropriate, in finding a negotiated solution
to their dispute. He can terminate the procedure at any time
if he comes to the conclusion that pursuing it further would
be a futile exercise. The agreement of the parties, whether
partial or total, can be confirmed by the final arbitration
award.
The arbitration award is to be rendered in conformity
with the law unless the parties have, in writing, given the
arbitrator(s) the power to act as “amiable compositeur”
(permitting the arbitrator(s) to decide the dispute according
to the legal principles they believe to be just, without being
limited to any particular national law). In Quebec, that
seems to mean that the award could be based on equity
and not in strict compliance with the rules of law.
14
Time will tell if the French have come up with a novel
and efficient dispute resolution method.
med-arb continued from Page 6 Page 2
14
Antaki, N., L’amiable composition, dans Antaki, N. Prujiner, A. (dir.), Actes du 1er Colloque sur l’arbitrage commercial international, Montréal, éd. Wilson & Lafleur 1986, p. 151.GEC NEutrals rEsolvE aN array of CoNstruCtioN DisputEs
Roy S. Mitchell, eS q., recently successfully mediated a number of disputes,
one arising out of a large U.S. government design-build contract at a military
installation, another relating to a rehabilitation and upgrade project for a historic
structure in the Mid-Atlantic area and the third involving fire protection, precast
and exterior insulation and finishing system disputes on four related contracts.
John W. hinchey, eS q., was selected as a party-appointed arbitrator to
resolve a dispute between the prime contractor and a public owner of a wind
energy project in West Virginia. John was also appointed as Chair of a Dispute
Advisory Board for a $5B project relating to the construction of five hotels
in the Bahamas.
PhiliP l . BRuneR , eS q ., recently mediated a six-party dispute regarding
a construction project in Oak Ridge, Tennessee.
rECENt HoNours / appoiNtMENts
PhiliP l. BRuneR, eSq., was recently elected to become a Fellow of the
Chartered Institute of Arbitrators (FCIArb.). He is also the recipient of the
Norman Royce Prize, which was recently awarded by the British Society
of Construction Arbitrators, for his article “Rapid Resolution ADR.”
In the recent Special Edition of LEXPERT magazine, h a Rvey J. Ki RSh, eS q.,
has been named one of “Canada’s Leading Infrastructure Lawyers.”
Zela “Z ee ” G. clai RBo Rne , e Sq ., has been reinstated as a Fellow of the
American College of Construction Lawyers.
According to the Los Angeles and San Francisco “Daily Journal” legal
newspapers, the list of the “Top Neutrals of 2011” for California includes
JAMS GEC neutrals Kenneth c . Gi BBS, eS q.; Richa Rd c he Rnic K,
eS q.; h on. Willia M c ahill, eS q.; B Ruce a . e d Wa Rd S, eS q.;
and Ge Rald a . Ku Rland, eS q.
EvENts
On May 2, 2012, h a Rvey J. Ki RSh,
eS q., and new JAMS panelist
h on. J. e d Ga R Sexton, q .c .,
will be jointly leading an arbitration
workshop for civil litigators working
with Canada’s Department of Justice,
Defence Construction Canada
and other Crown corporations
and agencies in Ottawa.
In March, John W. h inchey, eS q.,
will be participating as a judge in
the Ninth Annual William C. Vis
(East) International Commercial
Arbitration Moot in Hong Kong.
And on April 26-27, 2012, John
has been invited to speak at the
Seventh Annual Fordham Conference
on International Arbitration and
Mediation, which is scheduled to
take place in the Great Hall at
King’s College, Strand Campus,
London, England.
On May 3-6, 2012, Phili P l .
BRuneR , eS q.; K atheR ine
ho Pe G u Run , e Sq.; John W.
h inchey, eS q.; J a Me S F. na Gle ,
eS q .; dou GlaS S. oleS, eSq .;
and t ho Ma S J. Sti Pano Wich,
e Sq . will be speakers at the Fourth
Annual International Construction
Law Conference, organized by
the Australian and New Zealand
Society of Construction Law and the
American and Canadian Colleges of
Construction Lawyers
in Melbourne, Australia.
On June 1-3, 2012, t ho Ma S J.
Sti Pano Wich, eS q.; h a Rvey J.
Ki RSh, eS q.; Phili P l . BRune R,
eS q.; and John W. hinchey, eS q.,
will participate in an arbitration panel
at the 2012 Annual Conference of
the Canadian College of Construction
Lawyers in San Francisco.
JAMS Global Construction solutions |
Winter 2012 11
NotiCEs & EvENtsNEWSLETTER BOARD OF EDITORS
philip l. bruner, esq.*
Director, JAMS Global Engineering and Construction Group
Harvey J. Kirsh, esq.*
JAMS Global Engineering and Construction Group
John J. Welsh, esq.
JAMS Executive Vice President and General Counsel
brian parmelee
JAMS Vice President - Corporate Development/Panel Relations
JaMs global construction solutions seeks to provide information
and commentary on current developments relating to dispute
resolution in the construction industry. The authors are not engaged
in rendering legal advice or other professional services by publication
of this newsletter, and information contained herein should not
be used as a substitute for independent legal research appropriate
to a particular case or legal issue.
JaMs global construction solutions is published by JAMS, Inc.
Copyright 2012 JAMS. Photocopying or reproducing in any form
in whole or in part is a violation of federal copyright law and is
strictly prohibited without the publisher’s consent.
JAMS GLOBAL ENGINEERING
AND CONSTRUCTION GROUP
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Additional members of the
JAMS Global Engineering and Construction Group
M. Wayne Blair, Esq. • Viggo Boserup, Esq.
Hon. William J. Cahill (Ret.) • George D. Calkins II, Esq.
Anthony Canham • Richard Chernick, Esq.*
Zela “Zee” G. Claiborne, Esq. • Robert B. Davidson, Esq.*
Linda DeBene, Esq. • Bruce A. Edwards, Esq.
David Geronemus, Esq. • Kenneth C. Gibbs, Esq.*
Katherine Hope Gurun, Esq.* • William E. Hartgering, Esq.
John W. Hinchey, Esq.* • Gerald A. Kurland, Esq.
HH Humphrey LLoyd, Q.C.* • Hon. Clifford L. Meacham (Ret.)
Craig S. Meredith, Esq. • Roy S. Mitchell, Esq.
James F. Nagle, Esq. • Douglas S. Oles, Esq.
Donald R. Person, Esq. • Alexander S. Polsky, Esq.
Barbara A. Reeves Neal, Esq. • Carl M. Sapers, Esq.
Hon. Rick Sims (Ret.) • Thomas J. Stipanowich, Esq.*
Michael J. Timpane, Esq. • Eric E. Van Loon, Esq.
Hon. Curtis E. von Kann (Ret.) • Michael D. Young, Esq.
*GEC Advisory Board Member
JAMS GLOBAL CONSTRUCTION SOLUTIONS
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